Nicolas Goetzmann is responsible for research and macroeconomic strategy at Financière de la Cité.
The Covid-19 crisis boils down to a political decision: to blockade in order to preserve, at best, a health situation whose evolution seems unpredictable. Then, beyond the effects of measures taken by governments, the uncertainty surrounding the scale of the epidemic throws the stock markets to the ground, and causes a halt to the ambitions for business development. Investments, recruitments and expenses come to a halt.
The economic consequences of the current shock must now be anticipated and dealt with, in order to avoid adding another recession to the lost European decade. Not because the recession is certain but because it is simply likely.
It only takes a few months for a recession to wipe out the results of several years of growth.Because it only takes a few months for a recession to wipe out the results of several years of growth. The balance of power between growth and recession is in this sense asymmetrical. When the government welcomes the return to "the lowest unemployment rate in 10 years", it confirms that a decade has been necessary to correct - facial only - the effects of a crisis that occurred 12 years ago.
Avoiding a recession then appears to be the most decisive act in any economic policy. The difficulty of the task being to act before the realization of the evil, which supposes to assume the risk of overreaction. A trivial risk compared to the consequences of a failure to react. Thus, behind the obvious health priority, the indirect economic threat posed by the Covid-19, at the start of March 2020, is a life-size test of Europe's ability not to repeat its mistakes of the past decade.
Paradoxically, the current situation of a developing crisis is a second political chance for Emmanuel Macron. While the OECD, the IMF, and certain private organizations are already revising their growth forecasts downward in the euro zone, already suggesting a recession in Italy and possibly in Germany, the European reaction is summarized for the moment to the usual swinging arms strategy. This shows a clear flaw in the management of European power.
But this sclerosis of European action owes everything to that of the governments of its member countries. The total budget of the European Commission - 150 billion euros - is in itself a mark of weakness, the lack of means reveals its absence of power in such circumstances. As was the case in 2008, it is up to the national executives to take the initiative, both individually and within the framework of the European Council, the body of the EU's intergovernmental reality.
Emmanuel Macron now has the opportunity to move - legitimately - towards the diplomacy of the balance of power with Berlin.Now, having hit the wall of reality following his transactional approach with Germany, Emmanuel Macron now has the opportunity to move - quite legitimately - towards the diplomacy of the balance of power with Berlin. German complacency in the face of the current situation, noticeable through the declarations of its political leaders but also of its economic institutions, opens the way to a call to French order for the implementation of a policy of anticipation of the height of the stakes.
A call to order which could take the form of calling into question the European Stability Pact, that is to say "the 3% rule", which would ultimately only reflect the recommendations for support for the growth formulated by the OECD or the IMF, but also the very words of Emmanuel Macron when he said to the British weekly The Economist on November 7: “In this context, we must rethink our macroeconomic pattern. We need more expansionism, more investment. Europe cannot be the only area not to do so. I think that is also why the debate around 3% in national budgets, and 1% of the European budget, is a debate from another century. ”
It remains to pass from words to acts. In view of the gap existing today between the US pre-crisis fiscal stimulus, i.e. a deficit of 5%, and that of the euro zone - i.e. a deficit of less than 1% - Europe has a very significant room for maneuver in this area. The fall in interest rates in negative territory only demonstrates the market's expectation for such a response.
Emmanuel Macron must also impose a political debate concerning the role of the European Central Bank.Emmanuel Macron must also impose a political debate concerning the role of the European Central Bank, as its action will be essential for the months to come, and as its absence was at the origin of the gravity of the crisis of 2008 The current holding of a “monetary policy strategy review”, the results of which must be published before the summer, is also an opportunity to encourage the members of the Executive Board to orient their strategy towards maximum growth in the euro zone.
Since arriving at the Élysée, Emmanuel Macron has seen his popularity halve with the French, going from 66% in May 2017 to 33% in March 2020, according to the polling institute IFOP. The economic policy carried out, supported at 64% in June 2017, is now viewed negatively by 64% of French people. Current circumstances offer it the possibility of changing its approach and of genuinely supporting the French economy. Just grab the opportunity.
